Exhibit 99.1
Zale Corporation Reports Third Quarter Fiscal 2010 Results
- Revenues of $360 million compared to $379 million in prior year
- Comparable store sales down 2.2%
- Gross margin of 50.8%, an increase of 70 basis points compared to prior year
- Net loss of $12.1 million, or $0.38 per share, compared with loss of $19.5 million, or $0.61 per share, in prior year
DALLAS--(BUSINESS WIRE)--May 26, 2010--Zale Corporation (NYSE: ZLC) today announced that for the third fiscal quarter ended April 30, 2010, it had a net loss of $12.1 million, or $0.38 per share, compared to a net loss of $19.5 million, or $0.61 per share, in the comparable period in the prior year. Aggregate revenues for the quarter ended April 30, 2010 were $360 million, a decrease of 5.1% compared to $379 million during the comparable period in the prior year.
The Company achieved gross margin on sales of 50.8% during the quarter ended April 30, 2010, compared to 50.1% in the comparable period in the prior year. The 70 basis point improvement was primarily the result of lower promotional activity during the 2010 quarter. Excluding a $4.2 million charge for certain slow-moving inventory recorded during the quarter ended April 30, 2010, gross margin would have been approximately 120 basis points higher at 52.0%. Same store sales during the quarter ended April 30, 2010 decreased 2.2%, compared to a decrease of 20.0% during the comparable period in the prior year. The Company has closed a net amount of 149 retail locations since April 30, 2009 of which 6 were closed in the quarter ended April 30, 2010.
The Company reduced aggregate selling, general and administrative expenses by $16 million during the quarter ended April 30, 2010 compared to the same period in the prior year. Operating margin for the quarter ended April 30, 2010 was (6.2%), an improvement of approximately 280 basis points compared to (9.0%) in the comparable period in the prior year.
In the quarter ended April 30, 2010, the Company had an income tax benefit of $12 million, compared to a benefit of $17 million in the comparable period in the prior year. The income tax benefit for the quarter ended April 30, 2010 was primarily attributable to net operating loss carry-backs identified and recognized during the period.
Inventory at April 30, 2010 was $693 million, a decrease of approximately $70 million from April 30, 2009 due principally to store closures. As of April 30, 2010, the Company had outstanding debt of $299 million compared to $333 million and $368 million as of April 30, 2009 and January 31, 2010, respectively. As disclosed on May 10, 2010, the Company entered into a $150 million senior secured term loan and an amended and extended revolving credit facility. Net proceeds related to these financing activities of approximately $125 million were used to pay down the revolving credit facility. Accordingly, total indebtedness and total available borrowing capacity were approximately $310 million and $250 million, respectively, as of May 10, 2010.
“We have completed the initial stages of our turnaround plan,” commented Theo Killion, President and Interim Chief Executive Officer. “With the additional liquidity that we announced earlier this month, all of our focus will be on fixing the business in order to return it to profitability.”
“The financial results for the third fiscal quarter of 2010 reflect our continuing discipline with respect to promotional activity, inventory levels and expense management,” commented Matt Appel, Chief Financial Officer. “The recent enhancements to our capital structure provide the necessary foundation for the execution of our business plan.”
A conference call will be held today at 9:00 a.m. Eastern Time. Parties interested in participating should dial 800-679-2671 or 706-643-7467 five minutes prior to the scheduled start time. A webcast of the call, as well as a replay, will be available on the Company’s Web site at www.zalecorp.com on the Investor Relations section. For additional information, contact Investor Relations at 972-580-5032.
About Zale Corporation
Zale Corporation is a leading specialty retailer of diamonds and other jewelry products in North America, operating approximately 1,900 retail locations throughout the United States, Canada and Puerto Rico, as well as online. Zale Corporation's brands include Zales Jewelers, Zales Outlet, Gordon's Jewelers, Peoples Jewellers, Mappins Jewellers and Piercing Pagoda. Zale also operates online at www.zales.com, www.zalesoutlet.com and www.gordonsjewelers.com. Additional information on Zale Corporation and its brands is available at www.zalecorp.com.
This release and related presentations contain forward-looking statements, including statements regarding the expected effect of the financings and other agreements on our business, including our ability to return to profitability and provide the working capital necessary to execute our merchandising and marketing initiatives. Forward-looking statements are not guarantees of future performance and a variety of factors could cause the Company's actual results to differ materially from the results expressed in the forward-looking statements. These factors include, but are not limited to: if the general economy continues to perform poorly, discretionary spending on goods that are, or are perceived to be, “luxuries” may decrease; the concentration of a substantial portion of the Company’s sales in three, relatively brief selling seasons means that the Company’s performance is more susceptible to disruptions; most of the Company’s sales are of products that include diamonds, precious metals and other commodities, and fluctuations in the availability and pricing of commodities could impact the Company’s ability to obtain and produce products at favorable prices; the Company’s sales are dependent upon mall traffic; the Company operates in a highly competitive industry; the financing market remains difficult; and changes in regulatory requirements or in the Company’s private label credit card arrangement with Citibank may increase the cost or adversely affect the Company’s operations and its ability to provide consumer credit and write credit insurance. For other factors, see the Company's filings with the Securities and Exchange Commission, including its Quarterly Report on Form 10-Q for the fiscal quarter ended January 31, 2010. The Company disclaims any obligation to update or revise publicly or otherwise any forward-looking statements to reflect subsequent events, new information or future circumstances, except as required by law.
ZALE CORPORATION AND SUBSIDIARIES |
CONSOLIDATED INCOME STATEMENT DATA |
| (Unaudited, Dollars in thousands, except per share amounts) |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | Three Months Ended April 30, | | | | Nine Months Ended April 30, |
| | 2010 | | | 2009 | | | | 2010 | | | 2009 |
| | | | | | | | | | | | |
| Revenues | | $ | 359,843 | | | | $ | 379,110 | | | | | $ | 1,271,305 | | | | $ | 1,422,630 | |
| Cost of Sales | | | 177,103 | | | | | 189,075 | | | | | | 639,019 | | | | | 757,209 | |
| Gross Margin | | | 182,740 | | | | | 190,035 | | | | | | 632,286 | | | | | 665,421 | |
| % of Revenue | | | 50.8 | % | | | | 50.1 | % | | | | | 49.7 | % | | | | 46.8 | % |
| Selling, General and Administrative | | | 194,069 | | | | | 209,819 | | | | | | 649,518 | | | | | 727,035 | |
| % of Revenue | | | 53.9 | % | | | | 55.3 | % | | | | | 51.1 | % | | | | 51.1 | % |
| Depreciation and Amortization | | | 11,593 | | | | | 14,453 | | | | | | 38,123 | | | | | 44,498 | |
| Other Charges and Gains | | | (734 | ) | | | | - | | | | | | 26,738 | | | | | 13,221 | |
| Operating Loss | | | (22,188 | ) | | | | (34,237 | ) | | | | | (82,093 | ) | | | | (119,333 | ) |
| % of Revenue | | | (6.2 | )% | | | | (9.0 | )% | | | | | (6.5 | )% | | | | (8.4 | )% |
| Interest Expense | | | 1,954 | | | | | 1,929 | | | | | | 5,924 | | | | | 8,633 | |
| Loss Before Income Taxes | | | (24,142 | ) | | | | (36,166 | ) | | | | | (88,017 | ) | | | | (127,966 | ) |
| Income Tax Benefit | | | (12,047 | ) | | | | (16,621 | ) | | | | | (22,865 | ) | | | | (28,263 | ) |
| Net Loss | | $ | (12,095 | ) | | | $ | (19,545 | ) | | | | $ | (65,152 | ) | | | $ | (99,703 | ) |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| Basic Loss Per Common Share | | $ | (0.38 | ) | | | $ | (0.61 | ) | | | | $ | (2.03 | ) | | | $ | (3.13 | ) |
| Diluted Loss Per Common Share | | $ | (0.38 | ) | | | $ | (0.61 | ) | | | | $ | (2.03 | ) | | | $ | (3.13 | ) |
| | | | | | | | | | | | |
| Weighted Average Number of Common Shares Outstanding: | | | | | | | | |
| Basic | | | 32,107 | | | | | 31,972 | | | | | | 32,047 | | | | | 31,879 | |
| Diluted | | | 32,107 | | | | | 31,972 | | | | | | 32,047 | | | | | 31,879 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| Impact on GAAP Information from Special Items for Fiscal 2010, Diluted: | | | | | | | |
| | Three Months Ended | | | | Nine Months Ended |
| | April 30, 2010 | | | | April 30, 2010 |
| | Amount | | | Per Share | | | | Amount | | | Per Share |
| Net Loss | | $ | (12,095 | ) | | | $ | (0.38 | ) | | | | $ | (65,152 | ) | | | $ | (2.03 | ) |
| Store impairments | | | - | | | | | - | | | | | | 14,189 | | | | | 0.44 | |
| Real estate lease charges | | | (448 | ) | | | | (0.01 | ) | | | | | 2,121 | | | | | 0.07 | |
| Tax benefit from Business Assistance Act of 2009 | | | (12,802 | ) | | | | (0.40 | ) | | | | | (29,671 | ) | | | | (0.93 | ) |
| Loss before change in deferred revenue | | | (25,345 | ) | | | | (0.79 | ) | | | | | (78,513 | ) | | | | (2.45 | ) |
| Change in deferred revenue | | | 811 | | | | | 0.03 | | | | | | 7,026 | | | | | 0.22 | |
| Net Loss, as adjusted | | $ | (24,534 | ) | | | $ | (0.76 | ) | | | | $ | (71,487 | ) | | | $ | (2.23 | ) |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| Impact on GAAP Information from Special Items for Fiscal 2009, Diluted: | | | | | | | |
| | Three Months Ended | | | | Nine Months Ended |
| | April 30, 2009 | | | | April 30, 2009 |
| | Amount | | | Per Share | | | | Amount | | | Per Share |
| Net Loss | | $ | (19,545 | ) | | | $ | (0.61 | ) | | | | $ | (99,703 | ) | | | $ | (3.13 | ) |
| Store impairments | | | - | | | | | - | | | | | | 5,003 | | | | | 0.16 | |
| Goodwill impairment | | | - | | | | | - | | | | | | 5,020 | | | | | 0.16 | |
| Tax adjustments (a) | | | (4,150 | ) | | | | (0.13 | ) | | | | | 11,697 | | | | | 0.36 | |
| Loss before change in deferred revenue | | | (23,695 | ) | | | | (0.74 | ) | | | | | (77,983 | ) | | | | (2.45 | ) |
| Change in deferred revenue | | | 4,313 | | | | | 0.13 | | | | | | 21,613 | | | | | 0.68 | |
| Net Loss, as adjusted | | $ | (19,382 | ) | | | $ | (0.61 | ) | | | | $ | (56,370 | ) | | | $ | (1.77 | ) |
| | | | | | | | | | | | |
(a) Tax adjustments for the nine months ended April 30, 2009 relate to a valuation reserve on foreign tax credits resulting from our decision to revoke our ASC 740 election during the second quarter of fiscal 2009. Tax adjustments for the three months ended April 30, 2009 include a benefit totaling $6.9 million related to a decrease in the estimated valuation reserve and a charge totaling $2.7 million related to the expiration of a net operating loss. |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| Reconciliation of GAAP Information to Non-GAAP basis for fiscal 2010: | | | | | | | | |
| | Three Months Ended | | | | Nine Months Ended |
| | April 30, 2010 | | | | April 30, 2010 |
| | Amount | | | % | | | | Amount | | | % |
| Gross Margin | | $ | 182,740 | | | | | 50.8 | % | | | | $ | 632,286 | | | | | 49.7 | % |
| Inventory impairment charge | | | 4,206 | | | | | 1.2 | % | | | | | 13,400 | | | | | 1.1 | % |
| Gross Margin, as Adjusted | | $ | 186,946 | | | | | 52.0 | % | | | | $ | 645,686 | | | | | 50.8 | % |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| Reconciliation of GAAP Information to Non-GAAP basis for fiscal 2009: | | | | | | | | |
| | Three Months Ended | | | | Nine Months Ended |
| | April 30, 2009 | | | | April 30, 2009 |
| | Amount | | | % | | | | Amount | | | % |
| Gross Margin | | $ | 190,035 | | | | | 50.1 | % | | | | $ | 665,421 | | | | | 46.8 | % |
| Inventory impairment charge | | | - | | | | | - | | | | | | 2,301 | | | | | 0.1 | % |
| Gross Margin, as Adjusted | | $ | 190,035 | | | | | 50.1 | % | | | | $ | 667,722 | | | | | 46.9 | % |
| | | | | | | | | | | | | | | | | | | | |
| ZALE CORPORATION AND SUBSIDIARIES |
| CONSOLIDATED CONDENSED BALANCE SHEET DATA |
| (Unaudited, amounts in thousands) |
| | | | | |
| | | | | |
| | | | | |
| | April 30, 2010 | | | April 30, 2009 |
| ASSETS | | | | | |
| Current Assets: | | | | | |
| Cash and cash equivalents | | $ | 23,906 | | | | $ | 18,403 | |
| Merchandise inventories | | | 693,127 | | | | | 763,314 | |
| Other current assets | | | 56,054 | | | | | 55,649 | |
| Total current assets | | | 773,087 | | | | | 837,366 | |
| | | | | |
| Property and equipment | | | 708,306 | | | | | 708,632 | |
| Less accumulated depreciation and amortization | | | (518,596 | ) | | | | (447,894 | ) |
| Net property and equipment | | | 189,710 | | | | | 260,738 | |
| | | | | |
| Other assets | | | 185,094 | | | | | 166,750 | |
| Total Assets | | $ | 1,147,891 | | | | $ | 1,264,854 | |
| | | | | |
| LIABILITIES AND STOCKHOLDERS’ INVESTMENT | | | | | |
| Current liabilities: | | | | | |
| Accounts payable and accrued liabilities | | $ | 289,103 | | | | $ | 226,696 | |
| Deferred tax liability | | | 48,194 | | | | | 72,888 | |
| Total current liabilities | | | 337,297 | | | | | 299,584 | |
| | | | | |
| Long-term debt | | | 299,300 | | | | | 332,800 | |
| Other liabilities | | | 184,879 | | | | | 188,916 | |
| | | | | |
| Stockholders’ Investment | | | 326,415 | | | | | 443,554 | |
| | | | | |
| Total liabilities and stockholders’ investment | | $ | 1,147,891 | | | | $ | 1,264,854 | |
CONTACT:
Zale Corporation
Matt Appel, 972-580-4670
Executive Vice President and CFO
or
Steve Massanelli, 972-580-5032
Senior Vice President and Treasurer
